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I started the business as a Sole Proprietor, but I'm seriously considering changing to LLC. I don't like the idea that people can go after my personal assets. I'm doing this business part-time and got liability & equipment insurance. How do the "old-timers" feel about the two, as well as "S" Corporations.
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If you have any personal assets ie home...then I would def look into becoming a S corp. One lawsuit could take those things from you. We live in a sue happy world. But you should talk to your lawylor about this and he can find the best option for you.--- Chris
mowlawns@gmail.com -
Pro's & Cons of the (2) (Please note that the LLC Laws are different for each state).
Sole Proprieter: Pro's: Easy to "start", No personal property tax filing, costs nothing to start
Cons: Personal assets are at risk
LLC/S-Corp: Pro's: - Some protection of personal assetts
Cons: - Initial set-up Cost $$ (few hundred dollars in MD)
- Must file personal property taxes (in MD this costs $300 just to file). THen you have to pay a taxes on a % of your business related assets (it is about 2% in MD). This is the price of having your personal assets protected.
I am sure there are other pro's and cons in different states. I would recommend you talk to your accountant......if you do not have one and you want to go LLC then I recommend you get an Accouintant.
You may even want to look at an S-Corp.....
As a side note:
Also, there are ways that you can reduce your tax burden (specifically Social Security taxes) by paying yourself a fair market wage and paying the 15% SS tax only on that.....any other profit is taxed as it would be normally, but, without the 15% SS tax.
Example: Let's say your business clears $50,000 after all expenses. You would have to pay 15% SS tax on $50k....which is $7,500
Now, if you were to pay yourself a "fair" industry wage as an employee of your company......let's just say $12.00......and let's say you did 1,500 hours in that year. That would be $18,000 in salary. Now, you would have paid 15% of $18,000 in SS Tax......which is $2,700. The companies profit would then be around $29,000.....and you would NOT pay Soc Sec tax on the $29,000.....just income tax on that. SO you save $4,800 in taxes.
Now, I am not an expert, this was the basic example I was given by my accountant and how I am supposed to proceed thius year.......I think she has to file as an S-Corp......YOU definately need get an accountant to do this stuff.
My accountant cost me $450 for last year's taxes. Well worth the investment...Comment
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Thanks, MGO & Chris for your input. MGO I appreciate you taking the time to explain more about LLC & "S" Corporation. I'll have to check about paying myself a salary to save on taxes.Comment
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Hi cornerstone lawn,
I found a few websites that may give you futher insight.
LLC vs Corporation vs Partnership vs Sole Proprietorship What are they - How do they differ?
Why be a Sole Proprietor when There are Better Options?
Inc. vs. LLC: Which legal structure suits your business?
I hope these help.Comment
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